American coal prices in the aftermath of the coronavirus have reached unprecedented highs and world events are notching prices even higher [see “Russia-Ukraine war likely to bolster U.S. coal imports,” Trains News Wire, March 28, 2022].
While coal supply remains tight, continued favorable pricing may increase mining-company confidence to tap into reserves made cost-effective by today’s spot-market prices, potentially leading to new railroad opportunities.
Coal prices continue reaching new highs in most markets. Powder River Basin coal has receded from its December 2021 peak but is still $3 higher per ton than 10-year averages. Compared to the same period a year ago, spot prices per short ton of Illinois Basin coal are up a staggering 255%; Central Appalachia up 110%; Northern Appalachia up 84%, Powder River Basin up 28%; and Uinta Basin up 22%.
U.S. railroads have hauled more than 1.1 million coal carloads through May 7, according to Association of American Railroads data, a near 7% increase year-over-year. Year to date, Union Pacific’s coal traffic is up 24% and BNSF Railway’s is up 8%. In the East, CSX’s coal business is down 6% and Norfolk Southern’s is down almost 3% year-over-year.
Coal buyers who are hungry for more tons and have the flexibility to choose from a pool of suppliers may now be looking at U.S. locations where American coal companies have the workforce and capacity to beef up production and tap into reserves that might have previously been cost prohibitive, solidifying America’s relevance as an important global swing supplier. Such was the case shortly after the onset of the coronavirus when China started buying U.S. coal instead of Australia [see “China’s ban on Australian coal is benefiting U.S. railroads,” News Wire, Nov. 24, 2021].
The European Union’s decision to ban Russian coal imports after mid-August may allow the U.S. to bolster exports to European countries in the second half of the year. Tight supply and ongoing world events may extend coal’s post-pandemic renaissance through the balance of 2022; many analysts had expected demand to wane mid-year prior to Russia’s invasion on Ukraine.
High natural gas prices are another factor that may strengthen coal’s case. Henry Hub natural gas spot prices, the benchmark for the North American natural gas market, were $6.60 per million BTU in April, the highest in nearly 14 years. Coal typically becomes more competitive with natural gas when its price averages above $3 per million BTU.
The U.S. Energy Information Administration forecasts in its latest coal outlook that coal production will rise 3% in 2022 and those tons will be used to replenish stockpiles at power plants as well as support coal exports as a result of high global coal prices. The agency does note that labor issues, rail congestion, and equipment challenges may hold-back those production gains.
Coal miners’ ability to add capacity and capture spot market opportunities with partners, like railroads, will allow the sector to seize ancillary business during a time of extreme uncertainty and volatility. These conditions may help boost carloads in coal country’s most under-utilized places.
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- On May 26, 2022